Equitable Bank – Tell Me More About Your Business Failure Plan.

May 30th, 2017 · 1 Comment · Mortgages

I don’t even know the jokers that are running Equitable Bank but a picture is worth a thousand words. How much maple syrup are they drinking over there?

And the Big 6 banks loaned them money and here’s the document (of course) Equitable loan

To be honest, I have no idea what the actual interest that is going to be charged on the $2 Billion loan. It’s like one of those bloody logic puzzles.

  • The Term – 2years
  • Up Front Fee is 0.75% of $2 Billion = $15,000,000
  • 1.25% over each banks cost of funding ??? = ??? for money borrowed
  • Standby fee for money not used is .05% = Max of $10,000,000

The amount charged fully depends on how much is borrowed but it’s a minimum of $25,000,000. If Equitable draws from this loan to fund a mortgage at the advertised rate above of 2.64% they are making a maximum gross profit of .64% assuming the lending banks cost of funding is 0. (Which obviously it isn’t) To calculate 0.75% + 1.25% = 2% + bank cost of funding (?)

What does this mean? It means that either their advertised rate is bullshit or they are in the business of losing money. Hopefully they charge a much higher rate than the advertised 2.64% but that also means they are taking on more risk.

If the VIP’s and high muckety mucks weren’t so busy trying to convince me how stable and wonderful this mortgage banking is, I wouldn’t really care, but a little digging reveals that the margins are not attractive. It’s just not sustainable over time, and unless there is something I’m missing which I may well be, the long term prospects for this company are nil.

As a banking entity you cannot get on the wrong side of interest rates and survive. It’s the same with real estate in your cost of borrowing is 5% your cap rate has to be 7% or preferably higher, otherwise you’re just slowly losing money and eventually you’ll be buying your coffee at Maxwell House instead of Tims or Starbucks. We all know that Maxwell House is some nasty shit so please, remember the fundamentals.

It doesn’t take a rocket scientist to figure out that a margin of 0.34% interest is a huge problem and obviously you’ll probably need an office or two and a secretary and a janitor and these people will like payment.

Thanks to @Keubiko for the graphic

Tell me more about how safe and secure Canadian banking is.

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